Marketing theories - benefits of theories in business

Good idea in theory

Theory has a bad name among marketers. As the antonym to practical or realistic, it has become a pejorative term that we use to disparage any idea we think has little value. Yet, when we belittle it, we discard a wealth of management research that can, if used properly, make a real difference in business. To quote the German psychologist, Kurt Lewin, "there is nothing so practical as a good theory".

Think of a theory as an explanation, proposed by researchers after observing management situations in the real world. In this context, there's no such thing as a good or bad one, only explanations that have more or less power to explain reality and are better or less well supported by good research evidence.

True, some theories are weak, but many are powerful and proven tools that help us to understand complex markets. This is demonstrated by looking at how management theory can answer some of the big questions facing marketers.

Customer needs
The Holy Grail for marketers is to understand which needs drive customer preference. Armed with that insight, our job is to create that combination of benefits that will make the prescriptions flow in our direction rather than to the competition. Yet, for all the money and time spent on research, we still struggle to differentiate our brand from its competitors.

A whole cluster of theories helps us understand customer needs. At the most fundamental, Maslow's hierarchy of needs and, more directly, Herzberg's 'two-factor' ideas about motivation lie at the root of customer preference. In the 1950s, they led to theories of 'market granularity' and segmentation. Those concepts help us to see that there is no such thing as the best product; there is only the best product for a particular market segment. In turn, this leads to the theories of the extended product and the value proposition in which the customer preference is not for the product alone but for the whole 'offer', as he or she perceives it. Marketers who eschew these theories cannot hope to grasp the complexity of customers' needs and are condemned to being market followers.

Segmentation and portfolios
As budgets tighten and demands for marketing accountability increase, marketers must focus resources where they make the best ROI. Theories of segmentation help us to understand that not every prescriber in a therapy area is the same, but to understand their relative value we need to look to theories of customer portfolio management. These began in 1965 with the famous 'Boston box' and its menagerie of cash cows and dogs. There have been many variants on this idea since – 'directional policy matrix' is the current best-in-class –but they all operate on the idea that both attractiveness of a segment and our competitive strength in it should determine the amount and type of effort we put into each target segment.

Since they allow for our competitive strength, portfolio techniques overlap with theories about capabilities. These include the neglected but still vital SWOT analysis and more recent ideas about what turns a capability into a strength ('resource based dependency' theory) and the whole idea of 'dynamic capabilities'. Without an understanding of the firm's relative strengths and its implications for targeting, marketers fall back on attacking the biggest segment, where returns are often lowest.

Innovation diffusion
Predicting the future of the market is difficult – almost impossible – to get right, but necessary to any planning process, especially for new products and markets. The theory that explains where the market is going is that of innovation diffusion, developed by Everett Rogers in the 1960s. His understanding that both firms and people adopt new ideas at different rates spawned other ideas. Principal among these are ideas about product life cycle, which allow us to predict what will happen next in terms of sales, competitive activity and profit. Although often under-used, life cycle theory also helps us decide how we should compete in the future. As product life cycle curves aggregate into industry life cycle curves, the same theories help us to predict where the industry is going.

Innovation diffusion also complements theories about how the 'task environment' of customers and competitors, is driven by the 'remote environment', of political, social and other factors. This last theory is probably familiar to most marketers as 'PEST', 'SLEPT' or similar acronyms. Theories that predict the future are far from perfect, but they still give their users an advantage over marketers who only live in the present.

Campaign management
Once all the market analysis is done and the strategic plan is approved, the marketer faces the challenge of how best to spend the all-too-limited budget. There's never a shortage of agencies promising the best return on marketing spend, but marketers need to understand the theory of how marketing communication works in order to spend wisely. At its root, it is explained by information theory and its concepts of coding, decoding, channel width and 'signal-to-noise ratio'. Armed with this information, marketers can start to design the campaign, but they should use two bodies of research that explain how markets like pharma differ from consumer marketing.

The first is the idea of the buying group, which is an old idea from industrial marketing but relevant in a world of payers, market access and evidence-based medicine. In many markets, buying group theories have evolved into theories of relationship marketing and key account management.

The second is the theory of the decision-making process; a series of steps from initial awareness through prescription to 'post-use confirmation'. The basic premise of this work, that the selling process must mirror the buying process, is fundamental to good campaign design. As even a quick reading of this work reveals, there's much more to campaign management than creativity and branding. Without an appreciation of this complexity, naive marketers will be at the mercy of their support agencies, which is never a comfortable position.

Make it happen
For all the difficulty of understanding the market, designing the strategy and developing a marketing campaign, experienced marketers know that this is only the start. As Percy Barnevik, one-time chairman of AstraZeneca famously said, business is 5 per cent strategy and 95 per cent implementation. How to make it happen, especially in a global matrix and highly political organisation, is the most important question for marketers. Contrary to what cynics say, it is also the area where theory can be of the most practical help.

The most pervasive explanations of how organisations work are those about organisational culture, especially Schein's ideas about how underlying values lead to organisational behaviour. Schein's work overlaps nicely with the work of sociologists like Burrell and Morgan, whose congruency hypothesis explains organisational effectiveness in terms of the fit between departments and with the market. Marketers who have read this often comment that they cannot imagine working without it.

Management theory is also extremely useful in understanding those parts of implementation that are the most frustrating for marketers, such as questionable leadership, endless meetings and uncooperative sales teams. The apparently incompetent decisions of some leadership teams, for example, are made much less baffling and a little less frustrating if seen through the eyes of cognitive psychologists. This work, such as 'upper echelon theory', describes how executives cope with complex, unfamiliar problems by 'framing' them to make them more manageable. Often the result is a faster, but less effective, decision.

In the same vein, the huge amount of time we spend in meetings is often explained in terms of getting 'buy-in' or building strategic consensus. Much of this time would be saved if more marketers understood the research about collaborative decision-making and organisational commitment. The former tells us that, mostly, meetings are poor tools for getting buy-in. The latter tells us that commitment has various forms and that the organisation competes for commitment with our team, our profession and other 'foci of commitment'. This work also helps explain why the sales team – the primary route to market for most pharmaceutical marketers – is often a difficult tool to use.

Theories of motivation, such as expectancy theory, say that we are all pretty self-interested and that strategy happens only when the firm's interests are aligned with those of the sales team. Complementing this, Locke's 'goal setting' theory – which lies behind the SMART objectives idea used by many firms – helps us to design sales and marketing targets that are strategically aligned and improve our chances of implementing them well.

Campaign management
There is a great number of theories that attempt to explain marketing. None of them is a panacea, but many of them are practically useful and some are indispensable to marketing excellence. The fact that they are so little used is a mystery.Our colleagues in R&D wouldn't dream of addressing a difficult problem without the aid of scientific theories. The fact that so many marketers make so little use of marketing theory is an indictment of their professionalism. For those who make the effort to understand the research underpinning marketing concepts, there is an opportunity to gain advantage.

The Author
Dr Brian D Smith is a visiting research fellow in the Marketing and Strategy Research Unit at the Open University Business School. He also runs Pragmedic, a specialist consultancy.
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